Net gambling firm cashes in its chips

Summary:A Pennsylvania company that pioneered Internet gambling before becoming an unwilling courtroom trailblazer, is selling its online casino and sports book to a Canadian company, saying it can no longer afford to wage its costly legal battles with U.S.

A Pennsylvania company that pioneered Internet gambling before becoming an unwilling courtroom trailblazer, is selling its online casino and sports book to a Canadian company, saying it can no longer afford to wage its costly legal battles with U.S. authorities.

The sale by Interactive Gaming and Communications Corp. of its Internet gambling operations for $5 million in cash and notes does not directly affect a criminal case pending against the company and its president in Missouri nor a Justice Department investigation.

But the action will allow the publicly traded Blue Bell, Pa., company, which will remain in the gambling business as a software developer, to eliminate the threat of further legal actions while it defends itself in those cases.

"The company does not have the financial resources necessary to defend its position for an indefinite period of time, nor to set the legal precedents necessary to preclude future legal attacks from other governmental authorities," IGC said in announcing the sale to the International Gaming Corp. of Vancouver, British Columbia, which is expected to be approved on Dec. 29 by IGC's board of directors.

International Gaming, a privately held Canadian company that was only recently incorporated, also has proposed building a horse-racing track in Vancouver and is seeking a license to operate two riverboat casinos in the province, said company President Gary Newman.

GOOD NEWS FOR BETTORS

The sale appears to be good news for gamblers who opened accounts with IGC's online subsidiaries -- Sports International sports book and Global Casino, both of which are based in Grenada. Many of the gamblers have been unable to collect winnings or close their accounts since the FBI raided IGC's headquarters in February 1997.

"We're going to pay them off forthwith ... as soon as [IGC] turns over the company to us," Newman told MSNBC, saying that is expected by early January.

That will be too late for Bruno Paniccia, a 25-year-old insurance-claims evaluator from Chatsworth, Calif., who was oblivious to the FBI raid when he opened a Sports International account by depositing $500 in April 1997.

After an initial hot streak, Paniccia discovered that he couldn't collect his winnings because -- IGC employees told him -- the Justice Department had frozen the company's accounts and seized records. After months of frustration and promises that payments would resume shortly -- as Paniccia was running his winnings up to almost $10,000 -- the inevitable losing streak arrived and soon his bankroll was no more.

"I wish I'd heard that six months ago," he said when informed of Newman's promise.

IGC was the first publicly held company in the United States to venture into Internet gambling when it opened its Sports International sports book in May 1996. That apparently made it an inviting target for the Justice Department, which has gone on record as saying that laws banning interstate wagering do not specifically address Internet gambling and need to be updated before it can attempt to crack down on Web site operators.

IGC and its attorneys have argued that because the actual gambling transactions occur on the computer servers of its offshore subsidiaries, both of which are licensed by Grenada, U.S. laws barring interstate wagering do not apply. The company also has tried to quash subpoenas for documents by arguing that confidentiality laws of Grenada could be violated by compliance.

LEGAL PROBLEMS DEEPEN

The company's problems deepened in May 1997, when a Missouri state circuit judge upheld a civil lawsuit filed against IGC by the state's attorney general, Jeremiah "Jay" Nixon. Judge Stanley Murphy ruled that IGC had violated state consumer-protection laws by misrepresenting to an undercover agent that it was legal to offer Internet wagering in Missouri and then accepting a bet. He fined the company $66,000 and ordered it to "reject and refuse" all applications to open accounts from Missouri residents.

In July, however, Nixon returned to court and filed criminal charges against IGC and the company's president, Michael Simone, saying it had ignored the judge's order and again accepted wagers from undercover agents.

The company entered a not-guilty plea to a felony count of promoting gambling and is scheduled to go on trial Jan. 5. A Pennsylvania court stayed an extradition order for Simone, 48, who currently awaits a final ruling on his argument that Missouri lacks jurisdiction in the case.

Scott Holste, a spokesman for Nixon's office, said the sale of the Internet gambling operations would have no bearing on the state's effort to prosecute IGC or Simone, who would face up to five years in prison and $15,000 in fines if convicted.

Simone has declined to comment on his case, but IGC attorney Lawrence Hirsch in July accused Nixon of using the case to create "self-serving publicity to further his political ambitions and trample on the rights of IGC and Mr. Simone."

COMPANY'S 'EXPANDED INTERESTS'

In November, IGC announced net income of $46,352 in the third quarter of 1997, up from a loss of $336,000 for the same period in 1996.

Simone attributed the increase to "more efficient management procedures, increased sales of software, and the expanded interests of our subsidiary companies" -- including the sale of its Internet gambling software and Web site design.

Newman, the president of International Gaming Corp., said his firm was able to make a "good buy" of the Internet gambling operations because of IGC's ongoing legal troubles.

"We were only going to buy a license [for IGC's gambling software], primarily to offer betting on our racetrack, but we ended up buying virtually the entire company."

He said the company plans to continue to operate the sports book and casino in Grenada.

Mitch Garber, a gaming attorney in Montreal, said International Gaming is unlikely to face the sort of legal challenges that IGC encountered in the United States.

"The Canadian government has taken a let's-wait-and-see attitude on Internet gaming," said Garber. "Federal law does say that gambling is illegal unless approved by the provinces. ... But in terms of Internet gaming, really nothing has been said."